The state will raise the excise tax on alcohol, affecting wholesalers and liquor store owners

The state repealed the sales tax to prevent Rhode Island’s liquor stores from losing business to Massachussets’ lower liquor prices.

Rhode Island will completely eliminate the 7 percent sales tax on wine and spirits Dec. 1, though the state’s sales tax on beer will remain.

The change was approved in June when the General Assembly passed the 2014 state budget. Rep. Jan Malik, D-Barrington, Warren, who owns a liquor store in the state, was a strong advocate for this shift.

The legislation is essential, Malik said in a General Assembly press release, because Rhode Island businesses have been losing revenue to Massachusetts liquor stores for years. In the past, state residents looking to purchase a large amount of alcohol would often go to liquor stores in nearby Massachusetts, where the sales tax is lower, said Howard Mahady, owner of Campus Fine Wines.

Mahady said he believes both local stores and customers will benefit from the elimination of this tax. The repeal of the sales tax “levels the playing field a little bit,” he added. “We’re thrilled about it.”

But George Darwin, owner of Darwin Liquors on Benefit Street, called the repeal “a complete fiasco.”

The elimination of the sales tax has been passed in conjunction with the increase of another tax on alcohol: the excise tax. While the sales tax affects customers, the excise tax falls directly upon wholesellers and storeowners, who then pass on the costs through prices. But Mahady said he believes that the effects of this increase will be outweighed by removal of the sales tax.

“A lot of the smaller wholesalers we deal with ate the cost (of the excise tax) themselves,” Mahady said.

Mahady said the 7 percent decrease to the sales tax will be significant both for large scale and individual purchases in their store.

“You know how we have a 12 percent case discount?” Mahady asked. “Well in December, it’s going to be a 19 percent sales discount.”

But Darwin said there is no way his store could benefit from this change.

“I lose no revenue to Massachusetts. Our customer base — many of them don’t have cars,” he said, adding that this tax shift will only increase the prices at Darwin Liquors.

The large distributors from whom Darwin buys have inflated their prices due to the excise tax, he said. To prevent losses, Darwin said he will have to increase prices at his store for the next few months.

“This was supposed to be a good thing, but it’s screwed me over,” Darwin said.

The elimination of a sales tax on wine and spirits is also estimated to cost the state $1.2 million in revenue.

Mahady said he hopes increased sales at Rhode Island’s liquor stores will strengthen the state’s economy and outweigh the losses in tax revenue, but “it’s going to take time.”

The state will reassess the removal of the tax in January 2015 to determine whether it has been beneficial, according to a General Assembly press release.